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  CSPAN    U.S. Senate    News/Business.  

    January 16, 2013
    9:00 - 12:00pm EST  

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so we will be seeing a lot of activity the next few months, debates about the appropriate size of the government, about the size of the deficit, and a lot of back and forth over these three issues. i think i just want, without going into all the different ramifications, i want to say one word about the debt ceiling, which is that not everybody understand what the debt ceiling is about. the debt ceiling, raising the debt ceiling, which congress has to do periodically, gives the government the ability to pay existing bills. it doesn't create new deficits. it doesn't create new spending. so not raising the debt ceiling is sort of like a family, which is trying to improve its credit rating sank i know how we can save money, we won't pay off credit card bills. not the most effective way to improve your credit rating. it was the very slow solution to the debt ceiling in august 2011 i got the u.s. downgraded last
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time. so it's very, very important that all these issues are important but it's very, very important that congress take necessary action to raise the debt ceiling to avoid a situation where our government doesn't pay its bills. >> a number of people have expressed concern about how much of the challenges actually were addressed in the deal. as you mention it certainly went part way but it leaves another the issues still on the table, and additional negotiations and are looking. would you characterize that as an additional clip that is facing us, or do you think that it's not as concerning as it was when you raised that term initially? >> as i said, the fiscal cliff, if it was allowed to take place would have probably created a recession this year. a good bit of that has been addressed, but nevertheless we still have first fairly restricted set of fiscal policies now.
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it's estimated that federal fiscal policy will contract from real gdp growth something on the order of one, 1.5% visual, quite significant drag on economy. at the same time with quite a bit to do to address our long-term sustainability issues. a lot more work to do, let me be very clear about that. but it's going to be a long haul. it's not going to happen overnight. basically because the government budget represents the values and priorities of the public, and decisions been made about what to spend on, what you tax and so on are very difficult and contentious decisions that will take some time to address. >> well, those is to use -- those issues of course are not the specific purdy of the fed, and so why do we shift gears and talk more specifically about some things that the fed is doing and things that the fed might do. perhaps a way to introduce that
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is to say that the fed of course is keeping interest rates at close to zero since roughly 2008, and it dug pretty deep into its arsenal, more recently in terms of in particular the very massive asset purchases recently launched its third round, which are intended to bring long-term interest rates. can you tell us how well you think that is working? >> so, to go back just one step, as you said we have brought the short-term interest rate down almost to zero, and for many, many years monetary policy just in bald moving the short-term, basically overnight interest-rate up and down and hoping that the rest of the interest rates would move in sympathy. then we had a situation in 2008 where we are brought the short-term rate down about as far as it could go, almost entirely digital.
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and so the question is what more could the fed do. and/or many people, decade ago, a lot of articles about how the fed would be out of ammunition out of ammunition out of ammunition ethic at the short-term rate down to zero. but a lot of work by academics and others, researchers at central banks suggested there was more that could be done when she got the short-term rate down to super in particular what you could do is try to address the longer-term interest-rate, bring the longer-term rates down. and there are two basic ways to do that. one way is through talks, teen occasions. sometimes called open mouth operations. [laughter] the idea being that if you tell the public you're going to keep rates low in the long-term that that will have the effect of pushing down longer-term interest rates. the one you're asking about is what we call at the fed large-scale asset purchases, or otherwise known as qe. the idea there is that by buying large quantities of longer-term treasury securities or
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mortgage-backed securities, that we can drag at interest rates on those key securities, and that in turn affects spending, investments and the economy. the latest episode, you know, so far we think we are getting some effect. it's kind of early, but over all it's clear that through the three iterations that you refer to, that we have succeeded in bringing long term rates down pretty significantly, and clear evidence of that would be mortgage rates, as you know the 30 year mortgage rate is something like 3.4% now. incredibly low. and that in turn makes housing very affordable and that in turn is helping the housing sector recover, creating construction jobs, creating house prices, increasing activity in that sector, real estate activity and so on. so i think broadly speaking that
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we have found this to be an effective tool. but we're going to continue to assess how effective because it's possible that as you move through time in a situation changes, that the impact of these tools could very. but i think what we have decisively shown is that the short-term interest rate getting down to zero, what economists call zero lower bound problem, does not mean the fed is out of ammunition. there's still things we can do, things we have done. and i would add that other central banks around the world have done similar things that have also had some success in creating more monetary policy support for the economy. >> you mentioned that, of course, there's been evidence the longer-term interest rates once the rate has come down to the initial round, a concern is that the unemployment rate remained very high and to further increase activity to try to bring that down, one would
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hope to see additional movements from the most recent round. are you suggesting that one would need to be patient, or you see a little bit more about how you would assess whether this most recent round is having the kind of effect that you would expect or anticipate? >> as i said, we will be doing that on a regular basis. we will be looking, first, at the impact on financial markets, we need to see some impact of there. we will be looking to see whether or not the labor market situation is improving. there has been some modest improvement. when we first began talking about the latest round, unemployment rate was about 8.1, now it is around 7.8. there's been some movement but we would like to see a stronger labor market. a labor market with nearly 8% unemployment, with 40% of the unemployed having been out of work for six months or more,
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that's not an acceptable situation. that's a situation where there's too many people whose skills and talents are being wasted, who are suffering significant hardships. so we are looking to see improvement in the labor market and the economy more broadly. so we will continue to evaluate. i can't give you specific criteria, except to say that we will be assessing the impact of our actions on financial market conditions, and looking to see how those links up to developments in labor markets and in the broader economy. as always you have to make assumptions. you have to ask yourself what would've happened if we hadn't taken these actions, but again, the evidence seems to be, and i would cite not on evidence on the u.s. but also on the uk and elsewhere, that these types of policies do have some impact on the economy, and at this point of course having reduced
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short-term interest rate close to zero we are looking for the tools we can get to get better outcomes. >> so if, so certainly hopefully there will be more of an impact going forward to continue to bring the unemployment rate down more quickly, you mentioned that you were looking at the kinds of tools that are available. are there more in the fed's toolkit that might have the kind of power to additional affect? >> first on the pace of improvement, that's an interesting question because the pace of growth, of economic growth over the last few years, since the beginning of the recovery, has not been as strong as you normally would think would be needed to get really big improvements in labor market. nevertheless, we have seen a decline in unemployment, which is very significant, and we hope to see ongoing improvement there.
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so it's a little bit hard to judge. exactly how much more improvement we will see, but certainly will want to keep things going in the right direction. in terms of additional schools, as i mentioned -- tools, once you get the short-term interest rate down to zero, there's basically two principal approaches, either securities purchases or communication. there are a few other things that are smaller magnitude, like the interest-rate we pay on the excess reserves, for example. but i think those are the two basic approaches that we have but, of course, we can continue to try to improve our communication, look for ways to be more effective, but there's no common resource on the web is now completely new method that we haven't yet attached. we have just had a meeting of the notorious port of the board of directors of the chicago fed, as you know, which provide some
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information about the conditions were explicitly in this region. and certainly the conditions across the country are quite varied. and i wonder if you could share how you factor in the differences across different parts of the economy when making decisions that, of course, are more aggregate. >> first, thank you, dean collins for joining the detroit branch. people probably don't know that you have been studying this, but every federal reserve banks around the country, there are 12 reserve banks, and a good number of additional branches, each one has a board of directors drawn from the private sector to be academics, it could be business people, could be community leaders, nonprofits organized and so on. and we draw these people in primarily to get their input and their insight. this is a very large and complex
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economy. there are many different sectors, and it's very helpful to us to have people from, leaders from different parts of the economy, from different parts of the country providing this invite, and giving us somebody to bounce ideas off of, to help us make better decisions and understand what's going on. so that's very useful, and i attended, at least part of the meeting this morning with the detroit branch, ma and i heard from a number of people about the auto industry, health care, academics, industry, a variety of things. so that's actually very useful. now, in terms of the local economy, michigan is still not withstanding that it's become much more diversified, it still has pretty significant reliance on auto production. and because auto sales struck so sharply during the great
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recession, the unemployment rate here rose i think like to 15%, or something like that, compared to a 10% national. it's now come back quite a bit as the auto industry has improved comment so we are seeing i think some strengthening, although conditions here are still not where we would like them to be. housing market also i think has come back some in michigan. but like any other industrial parts of the country, like pittsburgh steel plants and other places, michigan also is diversifying, bringing in high-tech, various kinds of service, health care, education and so on. and places like university of michigan, ann arbor, are a tremendous resource for entrepreneurs, people trying to develop new high-tech business businesses. so it is a good sign to see that
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america still has a powerful industrial base but it is diversifying into a wide range of new types of industries. so it is a large and complex economy. i don't know if you want to talk about the broader economy or not, but you could come back to it if you like, but you know, we have been seeing some improvement in the labor market, it's still not we would like it to be. growth has been moderate. there are some positive signs to look at, and i think one of the key positives, i made reference to, is housing. as you know, house prices in the u.s. felt about 30% and the amount of construction felt extraordinary over this recession. and now for the first time, really since 2007, 2006, we are starting to see increases in production, house prices, that will affect household wealth. that's one positive factor
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that's going to help us have, i hope, a better year in 2013 and in 2014. a few other things that are positive, just to point out, one is that state and local governments, which have been in very contractionary mode because of loss of tax revenue during the recession, laying off peop people, postponing spending, they are in much better shape now than they were a fugitive, including in michigan i think. and as a result they will not be the drag on the economy that they have been the last few years. energy, the energy industry in the u.s. is much stronger. consumers are more optimistic coming university of michigan publishes the index of consumer sentiment which is one of the very best guides to how consumers are feeling. and as long as the fiscal policy thing isn't getting too messed up, the consumers seem to be a
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little bit more upbeat. so there are some positives, but i want to be clear that while we've made some progress, there's still quite a ways to go before we will be satisfied. >> well, let me shift gears a little bit. certainly as you well know, there are some very vocal critics of fed policy. and i wonder what you might say to those who argue that, for example, the policy that is maintain interest rates at such low levels has asked the taken some of the pressure off of congress to try to address these fiscal challenges, and that the massive asset purchases has created extremely high risk, perhaps underappreciated risks for future inflation. >> well, the critics on both sides, you know, you should give the other guys a chance. [laughter] >> i'll get there later.
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>> well, let me first say that as we think about the costs and risks of any policy can we should also think about what we are trying to accomplish. and i made reference already, but the federal reserve has a dual mandate from the congress to achieve or at least to try to achieve price stability and maximum employment. price stability means low inflation. we have basically taken that to mean 2% inflation. inflation has been very little. it's low 2%, and appears to be on track to stay below 2%. so our record is very good. unemployment though as we've already discussed is still quite high. it's been coming down but very slowly, and the cost of that is enormous. in terms of lost, you know, lost resources, hardship, talents and
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skills in wasted. so our efforts to try to create more strength in the economy to try to put more people back to work, i think that's an extraordinarily important thing for us to be doing. and i think it motivates and justifies what has been -- i agree, and aggressive monetary policy. so that's what we are doing and that's why we are doing it. now, are there downsides, or the potential costs and risks? there are some. you mentioned inflation. we have obvious to use very expansionary monetary policy. we've increased the monetary base which is the amount of reserves that banks hold with the fed. there are some people who think that will be inflationary. personally, i don't see much evidence of that. inflation as i mentioned has been quite low. inflation expectations remain quite well and good. private sector forecasters do
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not see any inflation coming up. and in particular, we have i believe with all the tools we need to undo our monetary policy, stimulus, and just to take that away before inflation becomes a problem. so i don't believe that significant inflation is going to be a result of any of this. that being said, price stability is one part of our dual mandate, and we will be paying very close attention, make sure that inflation stays well contained as it is today. second issue i think probably worth mentioning is financial stability. this is a difficult issue. the concern is, has been raised that, by keeping interest rates very low that we induced, the federal reserve and deuces people to take greater risks in their financial investments, and that in turn could lead to
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instability later on. again, a difficult question. occupied take the rest of the are talking about it but i don't think i will do that. but what i will say is that we are first of all very engaged in monitoring the economy and the financial system. the fed has increased enormously the amount of resources we put into monitoring financial conditions and trying to understand what's happening in different sectors of the financial markets. we have also, of course, been part of the very extended effort to strengthen our financial system by increasing capital in banks, by making derivatives transactions more transparent, by toughening supervision and so on it so we are taking measures to try, both to prevent financial instability and to identify potential risks that we would then address through
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regulatory supervisory methods. and we are very much attuned to those issues, but once again i think this is something that we need to pay careful attention to, and as we discussed in our statements and have for a while, as we evaluate these policies we going to be looking at the benefits, which i believe involve some help through economic growth, through reduction of an opponent. but we will also be looking at cost and risk. we have a cost benefit type approach are. we want to make sure that the actions we are taking are fully justified in a cost and the type of framework. now, you mentioned, i didn't talk about the congressional issue. you know, i think that, you know, it's not really up to the fed to try to be playing games to try to induce congress to be doing what it should be doing. congress need to address these fiscal issues to interest rates
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will eventually rise but that means the economy will be strengthening. so, you know, we are not going to be playing games with it. we are going to follow our mandate, which means do what's necessary to help the economy be strong. congress should take care of their job which is to address the fiscal issues, which i talked about earlier, and i don't think that small change in interest rates are really going to make that much difference. indeed, i think the worst thing we could do, if we raise interest rates prematurely and cause a recession that would greatly increase budget deficits and would just make the solution to the problem all that much more difficult. so i don't see that raising issue rates and are to force congress to take action on fiscal policy is a very sensible way to go. >> well, as i mentioned in my introduction, you came to your
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position with a real expertise, as one of the world's experts on the great depression and how policymakers should react in the midst of a crisis. now that you have actually lived through a major global crisis, i wonder if you could tell us what surprised you most? [laughter] >> i was very engaged, very interested in financial crises. as an academic i worked on the great depression. i did theoretical work on the role of financial crises in macro economy, and i was very interested when i came to the fed in addressing issues related to potential crises, but obviously, you know, this was a very large and complex crisis that was more severe than i anticipated, certainly. and i think it would be fair to
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say that most people anticipat anticipated. but we did learn some things from history, and i think there's a lot of value to studying history, particularly from our perspective, economic history, because it helps you see what your predecessor did wrong and it right. two things we learned from the great depression. one was not to let monetary policy get too tight in the '30s, the federal reserves did not actively try to expand monetary policy a commendation it and as a result there was a deflation, about 10% deflation following crisis. very damaging. the fed also did not do very much in the '30s to try to stabilize the banking system, which you know, about a third of all the banks in the country failed. so those were two lessons that we really tried to learn from. we, of course, had been as we're discussing, very impressive, on the monetary policy site and we
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took strong action to try to stabilize our financial system because we understood that the financial system collapses, then the economy is likely to collapse as well. so we took those actions, learning from what had happened in the '30s. a couple other things i think that were useful. during the '30s, apart because obvious a the world was still recovering from world war i, there was a lot of international entity, cooperation among central banks, among governments was not very good. in fact, you may know about your audience may know about this tariff and the terra force in all the other things that happened during the '30s, it's very important if you can, global crisis like this one, to cooperate, to coordinate as much as possible with policymakers around the world. and that was something that we did quite actively, both in
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terms of banking and financial regulation stabilization and even to some extent in monetary policy when one day to a five or six of the world's largest most important central banks coordinated on an interest rate cut. we've also work with central banks in making sure that, for example, they have enough dollars to lend for banks that need to use dollars in their transactions. so cooperation has been very helpful in the latest episode. and that was another thing that we learned from the '30s. one less thing that occurs to me. one reason that the fed and other policymakers didn't take more aggressive fundamental action to try to in the great depression was, they were afraid to do anything that was
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unorthodox your there was the gold standard, a whole variety of standard practices, and given the great uncertainties that they faced, and i am not being critical because it was an incredibly difficult period, they often maintained a very orthodox approach. the person who changed that in the united states was president roosevelt who did a lot of different things, you know, some of which didn't work, some of which did work. but sometimes when you're in a very severe situation you need to consider unorthodox approaches. and the fed and other central brings -- banks to take some unorthodox policies which not all of them worked though a lot of them did. and we did help to stabilize the global financial system and begin a process still underway as bring our economy back to where we would like to see it.
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>> you raised the issue of what's going on globally, and the cooperation that has emerged with certainly, a very positive thing, but, of course, those global linkages are very important in terms of prospect for u.s. growth. if you look over the medium te term, where would you see a kind of plausible scenario to generate the demand for the growth that we help the u.s. is able to achieve? the art peter, i think you would agree, to go back to the very high household consumption levels that are argued as a single, given the challenges in europe, and slowing growth in china, not so clear where that growth might come from and i wonder what your thoughts are about that set of concerns and? >> well, it's true that global growth is somewhat slower, for a variety of reasons, different
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reasons. one is the european situation you alluded to. europe, much of europe has been in recession this point following the very difficult financial problems that they have had. some emerging market economies have slowed, again for a variety of reasons. the slow down in china was at least partly been a policy goal to try to create a sustainable growth path and to try to shift the sources of demand in china from foreign buyers, exports, to domestic, domestic demand. so variety of things have happened to slow overall growth, and we saw in the u.s. just last reading, the export numbers. that's, for us that's a loss of again potential growth from our perspective. so that a couple challenge.
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one globally, the different parts of the world that are facing slow downs, each has to address its own set of issues. in europe, there's progress that's been made in addressing their sovereign debt and banking issues that they have. you know, the european central bank has taken some important steps to try to stabilize the financial markets there. a bit helpful. they are working on improving their fiscal arrangements, both to great longer-term sustainability to individual countries, but also to put up a set of agreements under which countries will be willing to work with each other on fiscal matters. they are working to develop a union where bank regulation would take, be done throughout the euro zone by ecb or some other agency. and that would strengthen european banking system and make it less dependent on individual
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countries. so steps are being taken in europe, which i hope will help stabilize that situation over time. in the emerging markets, begin have a variety of different stories, but i think the fundamentals of their in the emerging markets are pretty good, as you know. and even if there some moderation of growth, in some countries, we are seeing over all a rather remarkable transformation of places like china and india, which has been the biggest anti-poverty program in history. the growth in those countries, many millions of people out of poverty. so i think the growth will proceed in those areas as well. with each country, each region, latin america, asia, dealing with different sets of issues. >> well, i know that our audience has many questions to
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pose to you. perhaps let me ask one final one before i turn over to our students, to questions from the audience. and that is given all the range of things that we've already discussed, are there one or two particular things that keep you up at night? [laughter] >> well, we have a dog that sleeps with a. [laughter] i try to get as much sleep as possible. i think that's probably good. it didn't work out today because the airline canceled, long story, but no. you know, i want to see our economy recover. i'd like to see this, i'd like to see stronger labor market like to see fiscal policy address common issues that i
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mentioned. there's a lot of difficult issues out there, but if you think things are moving, you know, not as fast as we would like but in the right direction, and i am, therefore, cautiously optimistic about the next couple of years. >> thank you. let me -- [applause] >> well, as i mentioned, i'm sure that there are a great many questions that have already been shared with our presenters, so let me turn the floor to them. spent thank you for your comments, chairman of the 90, -- chairman bernanke. the first audience question is this. if treasury had presented a trillion dollar platinum coins -- [laughter] -- with the fed have accepted it and credited account? if not, why not, and what does this mean for the independence
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of the fed moving forward and? >> well, as you -- i'm not going to give that any oxygen. [laughter] as you probably know, the treasury and federal reserve over the weekend, the treasury issued a statement which the federal reserve of crude stating that we didn't think this was a right way to deal with this problem. there are legal issues, policy issues. i think the right way to do with this problem, as i said earlier is for congress to do what it is now so stupid and needs to do and authorized an increase in the debt ceiling so we can pay our debt, pay our bills but that's the right way to do. and you know, i think that's what will eventually happen. but i don't think that going off in the other direction would really be all that helpful. >> hello, i'm one. i am a second year student at the ford school.
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studying in science and technology to the second question from the audience, does the debt ceiling still have a practical purpose? could be eliminated without much consequence of? >> does what? >> the debt ceiling. >> no, it doesn't really have -- it's got symbolic value i guess, but no other country i believe, maybe one or two of the countries but i think essentially no other countries in the world have this particular institution. just so everybody understands what it is, the congress appropriates $100, tells the government to spend $100 on whatever, and then it raises $80 in revenue through its tax code. now, there is arithmetic here. so says you've got to borrow $20, right? no. the congress has to give a third row which has 100 minus 80 equals 20.
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there really is, if the congress is approving spending and its approving taxing, and those two things are not equal, then this kind of logically, there's got to be something to make up the difference and that difference is borrowing. i'm not saying that deficits and debt are a good thing or a blessing that at all but the way to address it is by having a sensible plan for spending and a sensible plan for revenue. and make decisions about how big the government should be or how small it should be. but again as i was saying before, this was would like a family saying well, we're spending too much, stopping our credit card bill. that's not the way to get yourself into good financial condition. so yes, i think it would be a good thing if we didn't have it. i don't think that's going to happen. i don't think it's -- i think it's going to be around but i do hope congress will allow the government to pay its bills, not raise the possibility of default, which would be very, very costly to our economy.
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and then address very strictly these fiscal issues. i'm not saying we shouldn't do that, absolutely. there's a lot of important issues and very basic fundamental values involved. so let's do that, but we don't need to do it in the context of the debt ceiling. >> do you believe that the fed should actively prevent future asset bubbles? if so, what tools do you have to do that? >> asset bubbles are very, very difficult to anticipate, obviously. but we can do some things. first of all, we can try to strengthen our financial system, say, by increasing the amount of capital, liquidity is that banks hold, by improving the supervision of those banks, by
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making sure that every import financial institution is supervised by somebody. there were some very important once during the crisis that us and you had no effective supervision. so if you make the system stronger, then it's a bubble or some other financial problem emerges, the system will be better able to be more resilient, will be better able to survive the problem. now, you can try to identify bottles and i think there's been a lot of research on that, a lot of thinking about that. we have created a council called the financial stability oversight council, the fsoc, which is made up of 10 regulators, chaired by the secretary of the treasury. one whose responsibility is to monitor the financial system, as the fed also does, and try to identify problems that emerge.
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so you're not going to identify every possible problem for sure, but you can do your best. you can try to make sure your system is strong, and when you identify problems, you can use i think the first line of defense needs to be regulatory and supervisory authorities that not only the fed, but other organizations like the occ and the fcic and so on have as well. so you can address these problems using regulatory and supervisory authority. now, having said all that, as i was saying earlier, there's a lot of disagreement about what role of monetary policy plays in creating asset bubbles. it is not a settled issue. there's some people who think that it's an important source of asset bubbles but others do not. our attitude is that we need to be open-mindopen-mind ed about it and to pay close attention to what's happening and to the extent that we can identify problems, we need to address that. the federal reserve was created
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about 100 years ago now, 1913 was the law. not to be monetary policy, but rather to address financial interest. and that's we did of course in 2008-2009. and it's a difficult task, but i think going forward the fed needs to think about financial stability and monetary economic stability, some sense the two key pillars of what the central bank tries to be. so we will obviously be working very hard on financial stability. we would be using our regular supervisory powers, tried to strengthen the financial system, and if necessary we will adjust monetary policy as well but i don't think that is the first line of defense. >> okay. this question comes from twitter.
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since the fed declared it was targeting a 2% inflation rate january 2012, fomc has released its projections five times but and each one of these projections of the inflation rate has come in below this target. why then has the policy been set consistently to undershoot of the target? >> was about 140 characters? [laughter] >> i suspect many in our audience had related questions. >> that's a very good question. when we have tried -- one with tried to address but as i said, earlier when dean collins was asking me about the risk of some of our policies, i was pointing out that inflation is very low. indeed, below the 2% target, and unemployment is above where it should be and, therefore, there seems to be a pretty strong
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presumption that we should be aggressive in monetary policy. so, you know, i think that does make the case for being aggressive, which we are trying to do. now, the additional point that i made though was that the short-term interest rate is close to zero and, therefore, we are now in a world of nonstandard monetary policy, asset purchases and communications and so on. and as we were discussing earlier, we have to pay very close attention to the costs and risks and the efficacy of these nonstandard qualities, as well as essential economic benefits. and to the extent that there are costs or risks associated with nonstandard policies, which do not appear or at least not sustained degree for standard policies, then economics tells you when something is more costly you do a little bit less of it. we are being quite accommodative. we are working very hard to try
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to strengthen the economy. inflation is very close to the target. it's not radically far from the target. but in trying to think about what the right policy is we have to think not only about the macroeconomic outlook which is very critical, but also the costs and risks associated with individual policy that we might apply. >> so i'd like to follow up on that question a little bit. one of the things that you mentioned earlier, which is in the toolkit and which you have been trying to use in a variety of ways is the way that the fed explains its policy to the public. first there was a number of announcements that dates for how long interest rates would remain low. more recently, the move to making it conditional on performance, and a variety of changes such as more information in the minutes about the kind of
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information or the kind of discussion that has happened at the fed. and i wonder whether that increased information about what the fed is thinking you see as helping to be more effective or perhaps being complicating the message to some degree? >> well of course, that is summit extend up to the auditors, to the holders to determine whether anything is helpful or not. but i think that, to address your specific point, that switching from the date, when we started out by trying to convey to the markets when we thought, yeah, a short-term interest rates might start to rise, initially we give a date which was just our best just to as conditions change would change that a couple times. a better way to do it, in my view, is instead of talking
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about the date, which is very a very non-transparent way to expand which are doing, people say how did they get that date? what does it mean? instead, what we've tried to do in our more recent evolution is to try to explain what we will be looking for in terms of unemployment and inflation, our two main mandate objectives, before we would begin the process of raising interest rates. so that is first of all much more transparent and it helps people understand what our thinking is and what we're looking at. but also if the outlook changes, suppose for example, that some really good news comes in, i hope it does, some really good news comes in about unemployment, if we were using the date, people would know how to adjust that. how do we change that? is the date still valid or not? but if we're using these guideposts in terms of inflation, unemployment, then
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the investors and the market could say well, the date when we get to 6.5% on the planet seems to be a little closer now than we thought and that would allow us to change your estimate of when the fed is going to respond. so that should allow a greater clarity about how policy will evolve over time. and that's our goal. i mean, we have worked as a committee. it's not easy to work with 19 people, all who have very strong opinions, but over time we have tried to increase our clarity and tried to committee more clearly, and each individual's change can be debated but i think if you look at the broad suite of what we've accomplished in the last 15 years or so at the federal reserve in terms of communication, it's just been an enormous change and we are just much, much more transparent and
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easy to understand i think than would have been the case 15, 20 years ago. .. >> which were taken into receivership at the very beginning of the crisis because of the losses that they suffered on mortgages and because of their low levels of capital. i think there's a pretty widespread agreement in washington that reform is needed for those institutions, um, and
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the treasury has put out some alternative suggestions, other suggestions have been made by members of congress. but, um, so far not too much progress has been made in that area. and i they's one pretty -- i think that's one pretty obvious area that needs to be addressed. but with i would say that, you know, the bill, dodd-frank bill, of course, is very broad and has covered a lot of the major parts of the financial system. >> this question comes from an audience member. how do can you respond to the people who question the constitutionality of the federal reserve and would like to severely weaken it, and and furthermore, how do you respond to members of congress who wish to audit the fed? >> well, i'm not a lawyer, so i do know article i, section -- never mind. [laughter] i'm not a lawyer, but the fed has been around now for a century, and nobody so far has had a supreme court case.
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i'm not going to get into that issue. i think the fed performs the critical role of managing the monetary system which is, of course, a power that congress has to delegate which it has done. let me talk to the other issue which is, i think, more substantive. as you know, there are bills in congress that would, quote, audit the fed. and, um, it sounds like something, how could anybody object to auditing the fed? don't you have to look at people's books and see what's on their books? the trouble with audit the fed is that's not what it's about. it's a misnomer. the fed's books are thoroughly and completely audited. we are audited, first, by an outside, private sec or to have accounting firm -- sector firm which gives us a clean bill of health. secondly, all of our books, all of our financials, everything is open to the gao, the public
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accounting office which is, you know, works for the congress and the government and can look at anything it wants to look at. and, third, we also have an independent inspector general that is able to, you know, evaluate any aspect of the fed's financials or activities that it would like. if you'd like to see more about this, the fed's web site, federalreserve.gov, has a detailed discussion of all the various audits that the federal reserve goes through. so all of our financials, all of our activities are thoroughly audited with one exception. and that exception is that in the law which, um, created the government accountability office, the gao, there is an exception made for monetary policy. in other words, gao can do anything it wants at the federal reserve, but what it can't do is go in and audit a monetary
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policy decision. now, what the audit the fed bill would do is very simple, it would strike that clause. so if the audit the fed bill passed, then a congressman who didn't like the fed's latest interest rate move could say, gao, go audit that. and that would mean the government accountability office would send its staff into the federal reserve to look and see, you know, why did you guys raise interest rates and begin to investigate that decision. and it seems to me that's the first step toward, basically, the federal reserve no longer being an independent central bank. now, there's a very strong agreement around the world that if you want monetary policy made based on long-term considerations and not based on short-term political considerations, then the central bank needs to have some independence in making monetary policy. what this bill would do is strike at the very heart of that independence. so it's my opinion that many
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people who support the bill just think it means what it sounds like which is something about the financials. it's nothing to do with the financials. it has to do with whether or not congress can ask the gao to investigate a decision by the fed that it doesn't like. and, again, i think if you want a healthy economy, um, you want to have a strong and independent l central bank. and that is not consistent with that bill. >> this is the last question, and it comes from twitter. since there's a vibrant discussion of macroeconomic decisions on social media, do you get any of these discussions? and if so, how? >> well, you know, i read blogs. i'd just say, the 140 characters kind of limits the discussion on the twitter. [laughter] so those, i mean, i think blogs
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have become a pretty important source of intellectual exchange. the same way -- there was a very important step, dean collins will remember this. it used to be that, a way long time ago, if you were an academic and you wrote a paper, then you had to submit it to a journal, and it took two years, and it got published and, you know, it was like three years after you wrote the paper before anybody knew what you were working on. and then came the internet and working papers and so on, and pretty soon, you know, papers were available almost immediately for professional evaluation. but even that, of course, involved the long delay involved in doing the research and writing the paper and so on. what if you had a shorter perspective, a shorter idea that you wanted to put out there? well, again, the internet has provided useful ways for people
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to communicate, to discuss interesting ideas in monetary policy or anything else. i follow a lot of baseball blogs myself, actually. [laughter] so it's just the next natural step to creating a conversation among people. and, you know, i think that's been very constructive. so, um, there are a few federal reserve blogs. the atlanta fed has one, the new york fed has one, and we have twitter, we have facebook. we're really moving along here. [laughter] >> yeah. >> so we're still a little bit old-fashioned, but the, i think the social media do provide a really convenient way to communicate quickly to a group of people, to, change ideas -- to exchange ideas and to keep track of what's going on in a particular area. so, you know, i think, i think there's some positive
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developments there. >> well, perhaps we should encourage you to follow the tigers while you're following -- b. >> okay. [laughter] >> unfortunately, we are out of time. i'd like to thank our questioners for posing the questions. i'd like to thank all of you in this room and online for joining us in today's conversation. you can find information on future policy talks at the ford school on our web site and through our twitter site, and i hope you'll follow us. we certainly will be following the fed. chairman, thank you very much for joining us today. we are -- [applause] >> this weekend marks the 57th presidential inauguration. sunday at noon it's the official swearing-in ceremony at the white house. our coverage includes your phone calls and begins with a look back at the president's 2009 inaugural address at 10:30 a.m.
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eastern. then monday the public inaugural ceremonies with the swearing-in at the u.s. capitol. the inaugural luncheon at the capitol and the afternoon parade. throughout the day we'll also take your phone calls and your comments on facebook and twitter. live coverage begins at 7 a.m. eastern on c-span, c-span radio and c-span.org. today at noon we'll hear more about the preparations for the president's second inaugural from several members of the inauguration committee. they'll review the schedule of planned events and brief the press on the latest developments. that'll be live here on c-span2. also just before noon today president obama unveils, officially unveils his proposals for reducing gun violence. the proposals are based on recommendations from vice president biden's gun safety task force and will include an assault weapons ban, a ban on high capacity magazines and an effort to close loopholes in the background check system.
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watch live coverage of his announcement at 11:55 eastern over on c-span. >> he had been talking about this dream that he had had. he had talked about it for years, you know, the american dream, and that it had become his dream. and he had been in detroit just a few months before, and he had talked about, you know, i have a dream that america will someday realize these principles in the deck ha ration of independence. declaration of independence. so i think he was just inspired by that moment. >> sunday on "after words," claiborne carson recalls his journey as a civil rights activist, participating in the 1963 march on washington to prominent historian and editor of martin luther king jr.'s papers. it's part of three days of booktv this weekend, monday featuring authors and books on the inauguration; president obama and martin luther king jr. >> yesterday sander levin, the
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ranking member on the house ways and means committee finish the committee responsible for writing tax legislation -- talked about prospects for tax and entitlement reform in the 113th congress. speaking at an event hosted by the christian science monitor, this is just over an hour. >> okay, folks, let's get ourselves going here. thanks for coming. i'm dave cook from the monitor. welcome to our first breakfast of the new year. our guest this morning is representative sander levin of michigan, ranking member of the house ways and means committee. this is his first visit with our group, and we welcome him. he's a detroit native, earned his bachelor's degree at the university of chicago, a master's in international relations from columbia and a law degree from harvard. he was elected to the michigan state senate in 1964 and served as the senate minority leader. during the carter administration, he was assistant administrator of the agency for
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international development. he was elected to the house in 1982, four years after his brother carl was elected to the senate. in march 2010 representative levin won the gavel as chairman of the ways and means committee. thus ended the biographical portion of the program, now on to the thrilling process portion. as always, we are on the record. please, no live blogging or tweeting, in short, no filing of any kind when the breakfast is underway. there's no embargo when the breakfast is over, except that c-span has agreed not to use video of the session for at least two hours. pull the microphone close to you, if not, they'll come around with a boom mic. finally, if you'd like to ask a question, please to the traditional thing and send me a subtle, nonthreatening signal. i'll do my best to call on one and all. we'll offer representative levin the opportunity to make some opening remarks. thank you, sir, for coming. >> thanks to all of you for
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joining you. i was thinking yesterday as i was listening to the president about past, past conflicts over deficit reduction. mark and i were talking about how far back we go. it's a few years. and i remembered some of the earlier deficit reduction battles that we had. graham-rudman i and ii, graham-rudman-hollings. and i voted for virtually all of them. and i was thinking what's changed since those debates, and i think, um, there have been two major changes. number one, the deficit is clearly much greater, and that's an added dimension.
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but secondly, the, when i think of the ways and means committee, what a change there's been in its composition. when i joined ways and means, barbara carnival had just left as ranking member, and he then went to the world bank. i worked with bill frenzel on trade, bill archer was handling the tax material mainly, and bill gradson was working on health care. and i think a second major change that very much affects this debate is the changing composition of the republican party. um, i think it has moved very much more to the right, however you want to describe it from the days when i joined the committee. and i think that makes it very
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much more difficult to handle the problems that we have before us. so let me just comment briefly on where we are. you all heard the president yesterday. we've had spending cuts of a billion and a half, a trillion and a half. it comes from the budget control act and the levin appropriations. so we've had a trillion and a half of spending cuts. in addition, as we all know, we passed not so long ago the tax bill which, essentially, in terms of deficit reduction adds over $600 billion to it. so as the president described, if you take into account interest, we've essentially had
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deficit reduction of $2.5 trillion. the president set a goal of an additional $1 trillion deficit reduction. if we're going to, essentially, stabilize the debt say at 73% of gdp, we're going to have to in the next period of time have a deficit reduction of about one-fourth -- $1.4 trillion. for me that's the goal that we should set. and so the argument we're having in addition to what the deficit target should be, we're having a major battle over what should be the composition of deficit reduction. so let me just give you my point of view.
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the president yesterday talked about having balance, and i think for us democrats that's the key. there has to be a mixture of spending cuts and further revenue. and we need that balance for three reasons. number one, in order to promote economic growth. in my judgment, if all of it comes from cuts in programs, that will not accelerate economic growth. the second reason relates to income inequality. there's been a startling change in the last 0 -- 20 years really. the middle class has essentially been stagnant. and the figure really is in 2010
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93% of income growth went to the top 1%. in the third -- and the third reason relates to discretionary spending. i was looking at the ten-year projection for discretionary spending, and for the domestic part of it if we continue on this path in terms of rate of gdp, the domestic discretionary spending will be under 2%. it will essentially be cut close to half in this next decade. and so we're talking about education programs, we're talking about health programs including nih research, we're talking about infrastructure, we're talking about key domestic discretionary programs that are so important for the lives of
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the vast majority of the american people. so let me just say two things about that. number one, there has to be a balance and, number two, i think it's vital as the president said so clearly yesterday that the debt ceiling essentially must not be used as a weapon that, essentially, takes on and, essentially, undoes the basic full faith and credit of the united states of america. the president made so clear what would be at stake if that were to happen, and i just think it's so critical that that not occur. you know, i've been through these battles, as i said, for
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many decades. but i don't remember anyone essentially saying that we should go over the cliff in terms of the full faith and credit of the united states. the consequences would be, i think, dramatic. i think potentially cataclysmic. and for the republicans who essentially say let's do it, i think that would be a very, very serious mistake with foreseeable consequences. the federal reserve has said don't do it, and i think the responsible position is we should not flirt with it. >> can i -- so they don't march on me with torches if i don't start asking you questions, so you've said it would be cataclysmic, and it shouldn't be done in terms of breaching the
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debt ceiling. yet both sides seem locked in concrete. the president says i'm not going to talk about the debt ceiling, speaker boehner says it can't be done unless we cut spending at the same time. so having watched this for more than 30 years in congress, what are the odds of actually avoiding going over the cliff given where both parties are? >> i think toeds are that -- i think toeds are that -- the odds are that we won't do it. >> as a matter of faith? >> it's a matter of faith, it's a matter of consequence. i mean, those who say, okay, let's toy with that, they're toying with the american economy, and they're toying with the global economy. and so i think it's somewhat -- it seems brave to talk about doing that, but the closer you get to that cliff, i think the
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less likely it is that you'll find the u.s. over it. >> let me ask one over, then we'll go to rick and brian to start. let me ask you about tax reform. you told politico last week that a, quote, a balanced approach to replacing the sequester with spending cuts and revenue should accelerate tax reform, and i believe it's fully possible this year if we work on a bipartisan basis, unquote. how does that square, sir, with the people who say that tax reform is going to lose out because of scheduling, the need to deal with the debt ceiling, the need to deal with the looming she quester and the house republicans' concern that if they do anything on tax reform, that they may leave themselves up to the senate not to take action, and, therefore, they've taken an unpopular vote for no reason. why are you optimistic on tax reform? >> first of all, we have to resolve this debt can crisis in terms of -- this debt crisis in terms of sequestration and in terms of the full faith and credit of the u.s. in the next six weeks.
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we aren't going to accomplish tax reform in the next six weeks. so we have a deadline that i think cannot basically be moved for what we need to do. and so that will leave us adequate time to tackle the longerrer-range problems -- the longer-range problems. we're not going to accomplish tax reform in the next six weeks. but we need to, essentially, deal with the sequester, essentially find a balanced approach that's going to raise a trillion dollars or close to it. and so that's why i have some optimism, because we need to face up to the next six weeks, resolve it and then move on. >> rick? [inaudible]
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>> -- everyone else of this governance by conflict and clash -- [inaudible] i want to ask you about the point one of the things the other side -- [inaudible] how big a paneling would you need to see in terms of the republican give for you to entertain serious site element reform part of it? there's talk about let's take the debt ceiling off the table for the next four years if we get a big package. is that big enough with the tax reform? what do you need to see for you and some of your colleagues on the democratic side to say, all right, we're willing to engage in the kinds of conversations that the other side is insisting on with entitlements? >> first of all, we have to take the debt ceiling off the table for a considerable period of time. and secondly, regarding entitlement reform let's take medicare. there have been two changes in terms of medicare and its future. number one is that the rate of
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health care has been diminished. and the rate of medicare cost increase, that has also been diminished. that's the first consequence or the first event of the last three years. secondly, we have health care reform which i think has accelerated the diminution in health care cost increase. and what i think we need to do in terms of medicare is for both parties in both houses and the white house to sit down and have a serious discussion about how we continue to get ahold of medicare and other health care costs. we really need to do that. with social security we have to have the same kind of discussion. and so i'm urging the chairman of our committee, the chairman of finance, the ranking member
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in the senate, myself and the white house and others to sit down and look at medicare, look at health care reform, look at the reduction in the increase and see how we intensify that. i was among those who really urged in health care reform that we put into health care reform instrumentalities to change from a fee-for-service system. i went through this with my own family. fee-or for-service is not a feasible structure for the present or the future. we have the instrumentalities, i think, to exchange it for a different system. we need to do that. does that answer your question? >> >> part of the fiscal pawks over the debt ceiling, over
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sequestration, over even the continuing resolution. can that be part of -- the mini crises or or the big crises we're facing in the next couple of weeks. >> my own judgment is we need to face up to sequestration. we need to find a balanced way to do it and then go on to tax reform and entitlement reform. >> brian? >> um, in your view, did the president make an error either strategically or on the legal merits by taking any work around the debt ceiling off the table yesterday saying whether it's the coin or the 14th amendment that there's no way the treasury can, you know, really effectively prevent the consequences of breaching the debt ceiling if it's not raised? >> no. >> that was the right call? >> i think so. because it gets back to the first question from many klein about where we are -- from mr. klein about where we are. and to my comments about the change in the republican ranks.
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i really think the president had no choice but to, essentially, say to the republican party you should not dabble with the debt ceiling. that it's something that would have such serious consequences. and i don't want to essentially see if i can find ways around it. those ways are very problematical. and essentially, what we have to do is to face up to the need to address the she sequester -- sequester and then move on. and i don't want you to use as a weapon the debt ceiling because it's not a weapon against me, it's a weapon against the full faith and credit of the u.s. and, therefore, it's essentially a weapon against the citizens of
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this country, our economy and the global economy. and i think he needed to be straight up and not say that, essentially, what i'll do is look for ways around it. the republican caucus has, as i said at the beginning, so dramatically changed from when i joined ways and means which, by the way, has jurisdiction over the debt ceiling. and the republican party really has to decide how much it's willing to gamble with the economy of the united states. i think that would be a dangerous gamble, and i think the president was correct to essentially say it straight out. so i'm with him on that. >> we're going to go next to finley lewis, mark shields and john mcken non. finleysome. >> [inaudible] >> are i'm not surprised.
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>> a little bit premature since we don't even have a go ahead to begin such a negotiation, but assuming there is a negotiation that does result in a fairly comprehensive free trade deal between the european union and us and it's likely if you take a look at what the issues are going to be that that's going to have a profound impact on the whole regulatory regime both in this country and in europe, going into that what would be your reservations or your red lines, if you will, about the deal that would emerge from those negotiations? what would you be most concerned about? >> you know, i said in a meeting -- i sat in a meeting of the group that's looking at this. and my position stated there was, that we should undertake serious discussions between the u.s. and the e.u..
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at the same time, i think we need to be realistic. i was at doha -- what was that, over ten years ago? and i think there were unnecessarily optimistic views about how quickly it could be done and how uncomplicated it was. and it turned out that caution was the better part of judgment. the e.u. has immense regulatory issues, and i think they would have to be willing, essentially, to open up their markets and not use various procedures to try to safeguard their market. so, um, i favor proceeding but
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with an understanding that there are immense issues to be, to be looked at. and it's not going to happen very, very quickly. but i'm in fave of starting it -- i'm in favor of starting it. >> [inaudible] nontariff trade barriers which is just simply fancy language for, you know -- >> exactly. >> -- for regulations, you know, whether we're going to allow european feeds that might be con -- needs that might be contaminated with mad cow disease, and they have the same concerns. inevitably out of that is going to come a reconfiguration of the regulatory safety net on both sides of the atlantic. and what, i mean, is that a troubling prospect to you? do you see some opportunities to really kind of streamline the way the two economies govern themselves? >> it's the latter. let me put it this way, we've
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dealt with the issues regarding safeguard, health safeguards and others with other countries. we did that in negotiation with colombia. we did that in negotiation with panama. if any two entities can resolve those issues, it's e.u. and the united states. essentially what the e.u. has been doing, in my judgment, is to -- [inaudible] their regulatory provisions to i don't like the word "protect" exactly because it's overused, but to essentially safeguard their market from our competition. so we ought to be able to do that. if any two structures should be able to meet those, those tests, it's our two. that, i think, is very doable. i mean, the french will have to
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be willing to let us enter into their market. you know we've had the same problem with the russia pntr, and i think we have basically taken a step to resolve it. if we can do it with russia, we can do it with the e.u. >> mark? >> mr. chairman, you talk about the republican party changing. when the democrats are in the majority, they had, if i'm not mistaken, white blue dog democrats from arkansas, alabama, south carolina, mississippi, louisiana, north carolina and virginia. they're gone. the democrats have changed. i mean, isn't this a question that there's a gulf between the two parties? the democrats are far more uniformly liberal party than they were when you were the majority party, certainly when you came to the house and even most recently. so is it all one side, the
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change? >> no, mark, it isn't all one side. but, you know, i looked over the roster of ways and means when i entered in the next two years, i did that yesterday. and there's been a change in the composition both of democrats and republicans. and i regret what's happened. i think redistricting has really very much diminished competition. in the '90s i was in a marginal seat and had four contested elections. a few of us were talking yesterday about some of the ads that we ran in those contested elections. they were difficult. i think we need more of them. but, mark, let me be very clear about what my feeling is. there has been some change in the republican -- in the democratic ranks, but compared to the republican ranks, i think
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there has been considerably less change. i regret that there aren't more blue dogs within our ranks, but i think the main obstacle to resolving the debt ceiling crisis and moving on is, are the tensions within the republican conference and to some extent in the senate on the republican side. i said this with some caution. there has been, in a sense, a radicalization of the republican conference in the house. and i think that the results of that were shown in the difficulty that the speaker had in the last few weeks. so i'm not saying there hasn't been any change, but -- and we should, perhaps, discuss this and we'll debate it.
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i think in terms of mainstream america that the republican ranks have changed much more dramatically than have the democratic, the texture of the democratic caucus. um, as i look about, i think i've been part of a mainstream within the democratic party, and i think basically that mainstream -- look, we're willing to sit down and talk about further budget cuts. our insistence is that there has to be revenue and a major tax ingredient. the american people basically agree with that, mark. the american people basically says that there has to be balance. the american people basically say, said in terms of income inequality in this country that
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we were out of kilter. and i'll just close with this, i urge everybody to look at what's happened to income growth in this country in the last 30 years. i represent a district that is very, basically, blue collar. they've now changed it because of redistricting, so now there's a higher income ingredient. i represent mostly mccomb county. it was reagan democrat, as it was called, territory. maybe the first. and i think the you talk to people -- i think if you talk to people within mccomb county and parts of oakland, what they essentially will say is that for the last 10, 15, 20 years the middle class of this country has essentially been treading water. while there's been a tipping of the balance in favor of higher
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income groups. and i think they would agree with what cbo said, that that tipping has not been promotional of economic growth. so i think we remain on the democratic side -- though the ranks have what changed -- within the mainstream only this country while i think the republican conference is out of step. i think it's gone too far from the ranks of the ways and means republicans when i first joined that committee. >> we're going next to john mckennon, michael warren, arthur delaney, paige cunningham, stephen cooper and robert schlessinger to end. >> can you talk a little bit more about tax reform and entitlement reform? how do you see that process unfolding? are those two thingses going to be linked? is there going to be -- do you
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have a target in mind for the deficit reduction that might be involved and just talk about how that process works. >> well, in terms of deficit reduction i've indicated what i think is a reasonable target. i think what we essentially do, have to do is to move the ratio closer to 73% than it is today. and we can have an argument as to how much below that we need. i think the sequence is very clear, if i might say so. and i think this is what the republican party needs to accept. we need to deal with the sequester with a balance between cuts and revenues. we then need to have a serious discussion about medicare. i know there's been some discussion about moving the age. i have some real questions.
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i do think with health care -- health care reform is here to stay. i think the republican party needs to accept that. we've had, as i said, this diminution in the increased cost of medicare and other health care costs. i think we need to sit down and discuss are the last three years a trend? and how do we build into it a change from how we reimburse health care? in this sense i'm kind of a radical. i really believe we need to move away from fee-for-service to a different structure. and i, there were differences within the democratic ranks. i was in favor of building in
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instrumentalities that would help us move in that direction. we now have some further grants to accountable care organizations. there are other mechanisms. i'd like to have a serious discussion on a bipartisan basis about what was endeavored in ipasv. it's not likely to be triggered because of the reduced increase in costs. so how i would handle medicare. social security is not an immediate threat in terms of our imbalance. i think we should sit down and have a discussion about how we safeguard and fortify social security for the longer term. let me just finish quickly by talking about tax reform. dave camp set out a target of a 25% rate for individual and a 25% rate for corporate taxation.
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i said, um, i didn't think just setting that without indicating how you would get there was anything realistic. you haven't asked me how we're going to get more revenues for sequestration. in my judgment, we're going to have to take a look at proposals like the 28% proposal of the administration but with this caveat: i think i was among the first if not the first to say be careful about how you proceeded with itemized deductions. and so we asked joint tax to give us charts on income distribution for each of them. and the income distribution changes depending on what itemized deduction you're taking into account.
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but clearly, if we're going to find additional revenues including tax, taxes, we're going to have to look at itemized deductions but in a careful way. we're also going to have to look at loopholes. i think a number of you know that a few years ago i suggested we look at carried interest. i knew nothing about it until a law school classmate of mine some years ago told me he had been vfed in the use of it -- involved in the use of it. and while it was legal, he thought it was abusive. so i looked into be it. i think it's a, i think as part of tax reform we should look at it. and other loopholes. by the way, they're doing that in europe now. >> mr. warren? >> i don't know about everybody else here, but even though we've been through this, i'm still
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pleading ignorance on in this whole debt ceiling issue. i'm telling you what would happen if congress did not raise the debt ceiling that would make it such a dangerous option for going forward. >> i think our credit rating go down, and how would we pay the bills? how would we pay social security? how would we pay veterans? >> there wouldn't be any money? >> no -- >> [inaudible] >> the republicans are saying pick and choose. and so let's have a vote here. which ones would we pick? which ones would not occur right away? i mean, the president was right to say, in my judgment, to the republicans don't do it. you're playing with fire. >> but why? i haven't -- i don't understand that, i guess. >> why what? >> why are they playing with
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fire? what would happen in? >> but those are two different questions. i think the republicans have some idea what would happen. we've been through this with the credit rating. and i think, essentially, they know what would happen, and so they say let's pick and choose. by the way, they haven't said which they would pick. and which would be left aside. the president made clear we're not talking about future expenses, we're talking about paying for what the congress has voted. and pick and choose is something that is at this point theoretical but would become very real without spelling out which ones would be left aside. you can, you're not going to pay soldiers? you're not going to send out social security checks? you're not going to pay defense
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contractors? that's what's involved here. >> so if democrats -- >> one more, and then i've got to go to another person. go ahead. >> sure. if democrats feel this is dangerous, isn't it to the republicans' strategic advantage to just, you know, get to that point and get as much as they can out of your party? >> no, because i don't think that's a weapon that will move us. >> so it's not that dangerous? >> what? >> it's not that dangerous that it would push you to -- >> no, it's damn dangerous. it's very dangerous. it's so dangerous that this country should not toy with it. and the president essentially says i don't want to be leveraged that way because you're essentially leveraging this country. not me, but this country. >> arthur. >> thanks. republicans in the wyoming legislature want to use the
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unemployment reforms in the payroll tax cut bill from last year so they can drug test unemployed people. the labor department hasn't issued guidelines for this, but they will this year and presumably lots of other states will do the same thing. what do you think of that? >> the only two provisions in that -- look, we argued about it in the conference committee, right? it only makes appropriate if you can drug test somebody who was let go allegedly because of drugs or is a applying for a position that traditionally has had a drug test. that's what's in the bill. so the notion that in terms of the federal unemployment system that you can use drug testing beyond it is not consistent with the law. they can't do it. >> that's potentially a lot of
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positions. that's what the labor department's trying to figure out right now. do you still anticipate that it'll be relatively few, not a majority of jobs? >> look, the notion that it was a majority was a figment of somebody's imagination. there was no evidence that most people who would be covered by it that that would be the majority. it's two provisions. it's two aspects against someone who was fired because of it, allegedly, or someone who was applying for a job which traditionally has drug testing. that's a small minority of the cases. >> jennifer? >> i just want to get back to -- b. [inaudible] the cap that you mentioned just a minute ago. i know a lot of state and local groups, bigger cities, they've always stressed some serious concern and sent letters to you and your colleagues regarding as you talk about sequestration shifting the burden from the federal government to state and local and in infrastructure
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and -- [inaudible] can you reassure the state and local groups that interest for municipal bonds and in tax exemptions is off the table, or is that still a part of -- i know you've been a proponent of build america bonds and wanted to see that come back. and also, i guess, i just wanted to get clarification, um, you're very confident or personally confident that we'll see tax reform happen after sequestration? >> on the latter, i'm not very confident. i'm hopeful. secondly, in terms of 28%, that's why we need to have a serious discussion. the administration's proposal had itemized and nonitemmized deconductions -- deductions, as you know. there wasn't much attention paid to that. the state and local bonds is probably the largest part of the nonitemmized deductions. i have some concern about that,
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and we need to talk about its implication. but it's not so simple, because there's some analysis that say the way it works, essentially, the main beneficiaries become the very wealthy. and i think we need to look at that. in terms of state and local taxes, we also need to look at that. i'm not in favor of just accepting the administration's 28% proposal lock, stock and barrel. as someone who urged caution a year and a half ago, i continue to do so. but i just want to be emphatic, there is no way to meet the requirements of sequestration without balance. there have to be more revenues, and there also have to be budget cuts. let me remind everybody the speaker talked about $1 billion
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in revenues when he met with the president. we have not reached that, and so when i read editorials saying that i among others are talking about more revenues and more taxes, that's very true. and by the way, what was the proposition of the republicans when it came to revenues? it was itemized dedougs, right? -- deductions, right? so why would they be totally resistant? it was governor romney's suggestion, right, he said, well, just pick a level. but that's what he was talking about. so as part of sequestration discussions, we need to discuss further work on itemized and nonitemmized deductions. but one last point, i know we need to move on. remember, and i was emphatic about this in discussions with the administration, we needed to
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include in the tax provision the reinstitution of pes and pep. and that's been done at the 250,000, 300,000 level. so we already have built in some use of itemized deductions. we need to look at it further. >> paige. >> just wanted to -- [inaudible] the issue of medicare reform. you said that you talked a lot about acos and moving away from the fee of for-service model as a way to find saving. but it seems as though republicans are skeptical that that could achieve enough savings. they say we need to have more immediate cuts. so can you offer more specifics about where you might be able to find common ground with republicans? you mentioned raising entitlement age. what about means testing, rebates for dual-eligibles, other ideas that you could both agree on? >> okay, let's take each of those.
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um, i mentioned my concern about age. i think we need to have a very serious discussion about it and how it would help, how it would fit into health reform. number one. number two, as to other suggestions, um, we can hook at drug -- we can look at drug rebates. it's over, what's at stake is over $100 billion in terms of dual eligibles and others, as you know. um, i think we need to look at it. but let me just be clear about this. we've had a reduction in the escalation of health care costs and medicare less than a 1% increase. we need to sit down seriously
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and ask why that's happening. hhs says in good part it's because of health care reform, and i think that's part of it. but i'd like to engage all of my colleagues in how we accelerate the move from fee for service which, i think, in the long term is going to be how we best get hold of health care costs. um, i don't know your experience, and i won't dwell on it except to say my experience with fee for service in terms of the health care for my belovedded late wife was absolutely inscrutable. it was not understandable, it was inefficient. we received bills from people whom i don't remember ever meeting. it is, it is a system that is
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based too much on volume, and we need to move away from it. and i think we build into health care reform some instrumentalities. i want us to do more. >> what about means testing? >> we already do considerable means testing. and i don't think that's understood. when people just say let's do means testing, we do it for part b, as you know, we do it for prescription drugs. should we do more of it? i think we should look at it. but let's remember we don't want to move it up to a point where people drop out. so we need to look at that. >> steven? >> congressman, part of the jargon that we hear in d.c. is tax reform should be broad based, it should lower the
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rates, it should close loopholes. we hear this over and over. so the idea that tax reform should be revenue neutral, is that off the table now? is it now -- [inaudible] tax reform is going to raise revenue? >> i don't know, but we need to move away from the rhetoric. i mean, i said this at the beginning. 25% top rate, now dave camp has suggested that needs to be reevaluated. i never thought there was any reality to it. because no one ever said how you would get there. , and we now have raised the rates. we have to some extempt addressed -- extent addressed itemized deductions. i think we need to go into further discussion on that. so i favor, i favor tackling tax reform and getting away from this notion that essentially
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what we're going to do is to lower the rates and broaden the base. it's too rhetorical. >> mr. schlessinger? >> congressman, how realistic do you think it is that the president will be able to stick by his i'm simply not going to discuss or negotiate the debt ceiling stance as we approach the mid-february or march deadline? and if he does, is there a danger in, that he doesn't give the republicans face-saving out to be able to walk back from the precipice that they very, they've walked up to and beat their chests on? >> you know, i don't think it's a matter of saving face really. um, i think, again, the president was right to be blunt, and i think, i think what will happen is that the republicans
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eventually will decide on one of two courses. number one, to plunge us over the cliff in terms of debt ceiling or to sit down with the president and discuss a balanced approach. there are only two alternatives here. >> that's fine. i mean, the president said he's not going to discuss it period. >> he didn't say -- he said he didn't want to discuss the debt ceiling. he said he wanted to discuss what it would take to avoid sequestration. >> laura? >> i wanted to change the subject -- >> a little louder, please? >> sure. i wanted to change the subject to gun control. you were here when the assault weapons ban passed in '94, and i'm curious with this deep divide between republicans and democrats do you think that that
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is a possibility? and any common ground pieces of legislation that you think might be b able to get through? >> no, i think it's realistic. you know, i think the ground is shifting. i think the ground shifted when it came to i how we deal -- when it came to how we deal with the deficit in this country. i think when senator mcconnell said the electorate essentially voted for the status quo, he was wrong. i think the re-election of the president shifted the ground when it came to how we proceed with economic growth, how we address the role of the middle class, how we address programs relating to those who are trying to climb up the ladder to the piddle class. middle class.
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i also think the ground shifted on gun control including the ground on which the president stands. um, i think everybody should be honest. um, i think a lot of people shied away from gun control because they thought it was politically difficult. um, and i look at, look, i've been a strong advocate of it. maybe because it's been easier, though i represent a district for which it isn't totally easy. but i think essentially what happened in connecticut was a shifting of the ground under which everybody stands, and it may well be that as a result
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they won't shift. and it may be because of the way polarization has increased in this country. that there are lots of people who think that politically they can't move. but the country as a whole, i think, has shifted. and the president has shifted to some extent. i think he acknowledges that. so what's realistic? today i guess almost as we sit here there'll be a presentation. i think that we will pass some major provisions. i think in terms of magazines, i think we can do that. i think in terms of more or clear surveillance in terms of of who can buy, i think gun shows will come under regulation. in terms of assault weapons, i
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think there's at least a 50/50 chance we will act. >> thank you. >> anybody who hasn't had one and wants to do the last question? yes, ma'am. >> um, specifics of possible loopholes you might include in this tax reform package. what might be in there for energy in terms of, you know, targeting oil impacts, gas tax breaks and these types of things? would there be a section in there on that, or -- and what would it look like? >> [inaudible] yes. all right, so just quickly. you know -- is this the last question? >> no. >> okay. so i'll be really quick. oil and gas came within the provision that we passed to replace the provision we had for strengthening manufacturing in this country, right? because the wto held that it was
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violative of the wto. so we tried to replace it x that was also -- and that was also found to be wto viletive. violative. so then we passed the present section. at the last minute, oil and gas was placed in there. it had nothing to do with manufacturing. it was done in the wee hours. we were stuck with this do you want a replacement which will help manufacturing in this country including oil and gas, or are you going to vote against the whole darn thing? so we accepted a compromise. it's, it has to be extracted. talking about oil and gas. >> and now the last last question from mr. grant. >> we have two last, right? okay. >> [inaudible] b. >> i'll be brief. >> i'm sorry, francine.
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my ability to see around corners is limited. >> what i hear you saying, congressman, is basically the fiscal cliff deal has or more or less killed tax reform, that everything you would have wrung out of the tax reform process has been dealt with at least in a half-step measure to make it maybe not impossible, but much less likely that tax reform goes forward this year. is that, basically, what you believe? and, you know, if you can just say a word about why at this point tax reform should go forward. i mean, what do you see as the upside of that? >> i'm not saying that. what i'm saying is that i think we took some steps in the last package that has some, has some ramifications for tax reform. but i'm not saying that we should not sit down and talk about how we look at our tax structure and how we reform it.
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it's, it's affected by what we voted, but it isn't anything close to the whole package. i think what it does is to force people to be more concrete about what they mean when they talk about reform. i think we can do -- let me just give you an example. um, some of the provisions that we have on training and retraining, some of them are in appropriations, and some of them are in the tax structure. um, i think we can take a hard look at all of our training programs. some of them aren't involved with taxation. i think we can do that in many respects. so i'm not saying no. in a sense i think the opposite, as i see it, is what should happen.
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i think we should, we should extend be not end the debt ceiling issue. we should just set it aside for a considerable period of time. we should tackle sequestration, and we have to do that in the next six weeks. so i'm hopeful that we don't drag this out as some people are saying. b and then move on to a serious discussion of tax reform. and entitlement issues. so i see it in a sense the opposite way. i say let's get this done, the sequestration part and the debt ceiling, in the next six weeks and then move on. those who are saying let's do it dribble by dribble, they're the ones who would be undermining the effort to sit down and have a serious discussion of tax reform in the entitlements. >> we've got about two minutes
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left. francine. >> specific question about, um, itemized deductions. what's your thought on having a cap on itemized deductions but people can use it for whatever they want? they can use it for mortgage or charitable or whatever. >> i think the problem with a cap is that it has too serious a consequence especially for charitable contributions. because a substantial portion of the charitable contributions come from the very wealthy. i think the figure may be something like well over half comes to people with income over a million. it may be more than that. so the problem with a cap is it would have, i think, significant consequences for, for charitable
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contributions and perhaps for state and local taxes. so i think a better way to look at this is to look at the administration's proposal, but to do it with caution. and if possible, to do it on a bipartisan basis. maybe i close with a somewhat hopeful note. the notion that we should address that issue has some bipartisan roots in the last year, right? everybody's been talking about it. and we ought to be able to sit down and discuss on a bipartisan basis if the republicans are willing to look at additional revenues including taxation. and maybe i should close with this. um, i don't see the alternative.
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you cannot address sequestration simply through cuts. because if you reduce the amount for defense to, say, 100 billion which some people including somebody i know quite well says is feasible, but the 500 isn't. so if you reduce it substantially, defense, but have some of it, where's the rest of it going to come from? it would have to come in substantial parking lot, i think -- in substantial part, i think, from the domestic side. and i think if you look at what's happened and what is going to happen if we continue on this path to health research,
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nih -- and i say this in a personal way because of family involvement in health research -- um, when my wife started working running a peer review group on child development and child mental health, if there were 100 applications for the peer review group that she ran, they would set aside 50. the staff, my wife would set aside 50 as not very, very strong. they would take the other 50, and peer review would come out with 15 or 20 highly-ranked. and of that 20, maybe half of them would be funded. today it's lucky if two or three are funded. and what's true for child mental
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health and development is true for medical research, is true across the board in most areas of nih. we haven't -- this is not a question of starving the beast. this is a question of starving whether we're going to starve not the beast, but necessary programs in this country. and we shouldn't starve them. and so we need to face up to sequestration. we need, in my judgment, to see if we can set a target beyond it, $1.4 trillion over the next ten years. and we need to do it in a balanced way. and if not, we're going to threaten balance in this country including the full faith and credit of the united states.
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and the president was, in my judgment, absolutely correct to essentially throw down the gauntlet and say this must not happen. >> thank you for taking all of this time with us. >> my pleasure. >> appreciate it. thank you. nothing "money rocks". [inaudible conversations] >> this weekend marks the 57th presidential inauguration. sunday at noon it's the official swearing-in ceremony at the white house. our coverage includes your phone calls and begins at 10:30 eastern with a look back at the president's 2009 inaugural address. then monday the public inaugural ceremonies with the swearing-in at the u.s. capitol, the inaugural luncheon at the capitol and the afternoon parade. we'll also take your calls and
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comments on facebook and twitter. live coverage begins at 7 a.m. eastern on c-span, c-span radio and c-span.org. .. >> an effort to close loopholes in the background check system. watch live coverage of his announcement at 11:55 a.m. eastern over on c-span. in some related news, earlier today senate judiciary committee chairman patrick leahy said his
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committee will begin hearings on gun safety proposals and violence in the media coming up in the next several weeks. he was speaking at georgetown university law center about the committee's agenda for the 113th congress. we covered that live and you can watch it anytime on our website, c-span.org. >> the greatest honor history can bestow is the title of peacemaker. this honor now reckons america. the chance to help lead the world at last out of the valley of turmoil and on to that high ground of peace that man has dreamed of since the dawn of civilization. >> will we must embark on a bold new program from the benefits of our scientific advances and industrial progress, available for the improvement and those of underdeveloped areas. >> this weekend, public radio's back story with the american
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history guide. the history and traditions of presidential inauguration's life saturday morning at 11 eastern. >> yesterday, aarp ceo barry rand talk about economic issues facing middle-class seniors and challenges to achieving a financially secure retirement. he spoke at the national press club in washington, d.c. it's just over an hour. >> well, good morning, everyone. thank you. more water. before i get going, i would ask all of you a question. how many of you think that you're part of the middle class? and how many think that you're
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going to have a safe and prosperous retirement, financially? well, you should all be interested in this one. this will be both from a business perspective, as you're covering this, but also a personal perspective. so appreciate the pictures but let's get started. the prosperity of the middle-classes been the basis for the american way of life for the past 60 years. but today that prosperity is eluding many individuals and their families, for reasons beyond their control. the decline of the middle-class threatens our ability to fund health and retirement programs, to maintain a safety net for the most vulnerable, and to invest in our future. it threatens the hopes and dreams of generations of americans, both for themselves and for their children.
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a declining middle class makes upward mobility a better life, including more secure retireme retirement, the impossible dream, could it be the impossible dream? well, good morning, everyone. and welcome to aarp's agenda for the middle class 2013. aarp works to make life better for all. we have been fighting for the middle class for decades because these issues are important to our members, people 50 plus, and their families. in august 2011, aarp is public policy institute launched a year-long study of the well being of america's middle class with a focus on prospects for a financially secure retirement. today we will share what we've learned from that study and the policy applications going forward, specifically these three aspects. one, how the decline of of the middle class over the last 30
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years has affected real people. how future generations and retirees, 20, 30, 40 and 50-year-olds of the day will be affected if we don't turn this around. and three, what we need to do as a nation to restore prosperity to the middle-class, and keep the american dream allies. over the past generation more and more of the middle-class have fallen off the cliff into economic insecurity, and even poverty. old town by a lack of job opportunity, rising health care costs, inadequate savings, declining home values, a lack of consumer protection. stagnant wages that have not kept pace with the cost of meeting basic needs. the great recession and the ongoing financial crisis only tightens the squeeze on middle-class families that have cast a shadow on the future retirement prospects of today's
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workers. this has taken a serious toll on the middle-class family. as one woman in milwaukee told us, i feel like i'm just one big crisis away from utter devastation. and she is not alone. according to our new middle-class tracking index, the percentage of those in the middle-class who felt the secure drop from 26% to 15%, from 2004 to 2010. and the numbers were even lower for african-american and hispanic middle income families, only 10 and 11%, respectively. so how do middle-class families cope? well, they typically do three things. one, at least one and often both wage earners work longer and delay their retirement. and many of already retired end up owing back to work.
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two, drastically reduce their standard of living and rely on more government programs to help them make ends meet. or they take on more debt, borrowing against their home, 401(k), running up credit card balances, taking out loans and borrowing from family members here as a result, the death of middle-class some states increased nearly 300%. over the past decade. from a watch, a prime example, 62 and married, and five years ago he lost a job, found work but lost that job last month. he worked to part-time jobs without benefits. and when her husband lost his job last spring they went on cobra to get health insurance. and they quickly found that the costs were too high, too high for their budget.
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so karim bought a catastrophic plan. with a very high deductible which which saved them about $200 a month but gave him less coverage. karim's husband has since found a job as a clerk in a grocery store deli, resulting in a 60% cut in his income. suddenly their retirement is uncertain and very scary. they're thinking about starting to collect social security at age 64 to help pay the bills, even though they would be missing out on a forward benefit by waiting a couple of years. unfortunately karim's story is not unique. aarp is on caching only anxiety index says the top concerns among people 50 plus and their families are all related to health and financial security. having medicare and social security benefits available in the future, having adequate health insurance coverage and paying for health care spending. we hear this from our members
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all the time. a member in massachusetts sent me this letter. social security will be my main source of income when i retire. if i ever get to. i have a 401(k), but it was hit hard and i don't think i can catch up by the time i'm 65. without medicare i will never be able to retire. please do not eliminate or cut the benefit to those of us who've already put in hard earned dollars all of our lives. their concerns reflect the larger trend. the latest census data show that typical american families got poorer during the last decade. 15% of americans now live in poverty, the highest level since 1993. in 2012, the number of americans living under 125%, has reached
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an all time high of 66 million people. 66 million americans. more americans are reaching their 60s with so much debt they can't afford to retire. more low and middle income households are turning to credit cards to help meet a living expenses. and the number of uninsured, 16% of the population, now exceeds the combined population of 25 states and the district of columbia. that's hard to digest. the possibility of downward mobility in retirement is a looming reality for all workers. in fact, the rank of america's poor are on track to climb to levels unseen in nearly half of the century. erasing gains from the war on poverty in the '60s. and thus were able to reverse these trends that are driving the decline of the middle class, many of today's middle-class
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workers will not have a middle-class retirement. will not have one. in fact 30% of those currently in the middle-class will become low income in retirement. low income in retirement. here's why. two main reasons. white isn't health care costs and financial insecurity, rising health care costs will wipe out any gains that middle-class family were projected to attain. even though the poverty rate among retirees is projected to decline, that decline will be virtually wiped out by rising out of pocket costs, which will take an increase in share in the indictment -- retirement income. and lesser build on recent reforms, future retirees of those currently 25-34 will be less likely than current retirees, repeat this, less likely than current retirees to maintain their standard of living in retirement.
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all because of rising health care costs. this doesn't even factor into the rising cost of long-term care. and the second reason, financial insecurity. the middle-class was hit hard by the great recession, especially with loss of jobs and falling home values and foreclosures and reduced savings. instead of creating pensions that help people maintain a decent standard of living as they get older, we are seeing traditional or defined benefits pension a rose or just disappear altogether. 75% of americans their retirement age in 2010 had less than $30,000 in their retirement account. roughly half of all workers don't ever have a retirement plan at all. for most of those that do, the amount in a four o. their 401(k) would prevent a retirement benefit of less than $80 a month for life.
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for life. now, how do you live on that? the answer is not well. continue to work continues the one of the key ways to retain security in retirement. these trends placing more importance on social security as a source of retirement income. in fact, social security will be the main source of retirement income for the future retirees, adversely all income levels. and for nearly one-third of middle-class workers who will fall into have a low income in retirement, social security will represent over 80% of their retirement income. obviously, this is important to all people. now i've talked about rise in health care costs, talked about financial insecurity. i also want to mention a third factor, the rising costs of higher education.
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our research shows without question the most important contributor to middle-class ability is have a college degree or some type of post secondary education. it is the gateway to the american dream and, frankly, a key to restoring prosperity to the middle-class. the facts are clear. the median income weekend -- was more than 40% less than that of those with a higher education. what a gap. 40% less. moreover, the unemployment rate for workers with just a high school diploma is over 6%, more than double the rate of those with postsecondary degrees. african-americans and latinos lag far behind whites, just 13% of hispanichispanic s and 18% of african-americans aged 25 and older have a higher education as compared with 31% of whites. the cost of higher education is
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now out of reach for many middle-class families. and student loan debt is a huge drain on the income of middle-class families. the fact according to the report from the federal reserve bank of new york americans 60 and over still owe roughly $36 billion in student loans. that's more than 10% of our delinquent. an increasingly older adults are postponing retirement in order to pay off student loan debt accumulated by their children or grandchildren. now, none of this paint a pretty picture. and unless we figure out a way to reverse the downward spiral of the middle-class, the probability of the next generation being worse off than their parents is very high. we can't allow that to happen. so what do we do? how do we rebuild the middle-class to once again to
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ensure that everyone has an opportunity to achieve the american dream? the first thing we have to do is to broaden the current debate in washington from the narrow lens of deficit reduction, to the larger goal of economic growth and maintain the health and economic security of all ameri america. there's the question that reducing the federal deficit -- no one will argue with it. we need to address our nation's long-term fiscal problem. we understand that. they affect all of us. and most importantly, our children and our grandchildren. their future would not be very bright if they are drowning in red ink of budget deficits and historic national debt. we understand that, too. however, their futures will not be very bright if they can't afford health care or if they can't afford a quality education, or if they don't have the opportunity to attain
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long-term financial security. leaving them with less economic security by weakening osha's good and medicare would be just as bad. and for many people it would be worse. and if we weaken social security and medicare to the point that their parents and grandparents can no longer live with dignity and purpose, we will be risking their futures as well. as a nation we must broaden our focus. the goal should be improved economic growth for the nation and policies that secure health and economic security of the current and future generations. the current and future generations. washington, their budget today, has been focused on big numbers. but it's really about people and their futures. people and futures. a budget is not in of itself.
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it's simply a reflection of our nation's priorities and our goals. we cannot make budgets -- the consequences of those choices on people. solving the budget deficit by cutting social security and medicare benefits will leave too many people with nothing left at the end of the month. decreasing the federal deficit at the expense of medicare and social security also ignores the public overwhelming support in need for these programs. as well as the vitality and violent important role they play, and will continue to play in helping people obtain a secure retirement. now, we must look at retirement, retirement security broadly. let's have a broader view. congress and the president must work together and focus on a larger national goals of economic growth and jobs and health, financial security, and enacting affordable policy to meet those goals.
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let's not kid ourselves. we can't achieve those goals by simply cutting spending or just increasing revenue. we obviously need both. the social contract that requires that this generation leave the next generation a stronger rather than a weaker economy, often requires this generation to leave the next generation and more secure rather than a weaker retirement. the pew research, that center recently asked people what it would take to be part of the middle-class. they said the answer was fight things. not new news to you but we are going to reinforce it. a secure job, health insurance, owning a home, a college education of some form of higher education, stocks and bonds and other investment, in other words, it to be able to save and invest for the future. let me talk about jobs for just a moment.
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jobs are key to achieving the american dream, putting ourselves, our families and our country back on the road to prosperity and keeping america competitive in a new global economy. without jobs, today's workers have no chance for middle-class retirement. and economic growth and prosperity for the middle-class and others is not possible. as it is, more middle-class workers will need to work longer to maintain a decent standard of living and retirement. yet today millions of experience workers remain out of work in the wake of the great recession. during 2012, workers 85 and older were unemployed on average more than one year. we need to preserve the middle-class jobs that offer opportunity for advancement. we need to improve the pay and quality of lower skilled jobs that represents the fastest occupation in the decades ahead. the second thing, the second
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thing we have to do is tackle the high cost of health care. which is one of the most significant factors driving people out of the middle-class. rising costs have a negative impact on the federal programs such as medicare and medicaid as well as the cost of state governments and employees and individuals. the percentage of our nation's gdp dedicated to health care has nearly doubled from 10% to almost 20% of the last generation, and it is still rising. that's more than any other developed country with no better outcomes. we have the highest in the world. the highest cost, medical costs in the world. we cannot sustain an ever-increasing share of the nation's output going to help you but especially when the institute of medicine estimates as much as one-third of health spending is considered wasteful, or inefficient.
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the affordable care act begins to set in motion what needs to be done to reduce health care costs but we need to do more. policymakers must not separate reduce the federal share of health care costs by shifting the cost, the governments or other agencies. just shifting it. not solving it. just shifting it. in fact, it will make it worse because it fails to tackle the real underlying issue of bringing in high growth health costs throughout the system and the percentage of gdp that goes to health care. that's not solve. we cancel the by just shifting to an example of this new approach is raising the health care eligibility age. the end result of this policy is lower federal health costs in the program by shifting costs and the federal government to employers and states and families on medicare. including those in the middle-class.
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is only drive seniors to a more costly and less efficient providers which in turn raises -- nothing is solved. this is pure folly and very dangerous. a better approach would be to lower the growth in health care, the health care spending systemwide. if we focus on lowering the growth rate of costs throughout the health care system, we will also lower the cost of medicare and medicaid. and analysis by the president's council of economic advisers shows that lowering the growth rate of health care costs i 1.5%, per year will increase the rural income of middle-class families by $2600 in 2020. it would be 10,000 in 2030. it would b-24 thousand 300 by 2040. that's real relief for real people.
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all of this comes back to the impact on people. the impact on your friends, your family, your children. we can't just get medicare or raise the eligibility age to reduce the deficit. we have to make it work more efficiently, and we have to lower the growth in costs to keep a sustainable for generations to come. the affordable care act puts us on at least a path. the aca to cheat $716 billion in medicare savings, and that's more than was achieved in the physical click deal. on revenue. those statements were cheap without cutting a diamond of guaranteed benefits. so there is another way. by taking steps to remove waste and fraud and inefficiency in medicare, we have been able to reinvest some of those savings into lowering costs for beneficiaries and medicare by filling in gaps in the program.
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i'll give you some examples. most of you are aware of it. closing the donut hole in part the drug coverage and providing a friend of the -- providing preventative care. and it's working. for the 5.2 million people with medicare have saved $3.9 billion. last year people in the donut hole have saved an average of $770 on prescription drugs alo alone. now at the same time, the aca make medicare more secure, extending his financial life by seven years. it also helped reduce the rising cost of medicare, and he did so without taking a dime from a person's guaranteed benefits. there is another way. more needs to be done. moving forward if we pursue additional reforms in medicare and medicaid, such as payment innovations to promote value and not on him, measures to lower
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drug costs, providing consumers with better information on cost and quality, and emphasis on improving the health care delivery system, like integrated care programs, and continuing efforts to make the programs more efficient and to reduce waste. we will bring sufficient savings to these programs, spur innovation, spur innovative cost reductions in private insurance. and most important, help people get healthier and stay healthier which reduces health care costs. we also have to address the high cost of long-term care. and that means shoring up the medicaid program. medicaid is generally regarded as a program for the poor. did you know that? but in reality, medicaid has a huge impact on the middle-class as well. whether we like to admit it or not, medicaid is our country's long-term care program.
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in fact, medicaid pays for roughly two-thirds of the beds in nursing homes nationwide. the cost of long-term care is so expensive that many middle-class americans, after spending all of their own savings, end up relying on medicaid to pay for their care. this is an issue we have to fa face. and it does affect all of us. and that's why we're glad to see that the fiscal cliff legislation passed i congress and signed by the president create a bipartisan commission of long-term care. it's a positive step. third issue have to address is a low savings rate and the large-cap one estimate is over $6 trillion. $6 trillion between what individuals have saved and what they will need in retirement. that's a huge gap. it's got to get your attention. because it has to imply what
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will happen to people in retirement. will you retire and have the good life that you planned? the combination of high unemployment, low savings, became tradition or defined benefit pensions, decreased own values and longer life expectancy means that too few are accumulating enough to last through their lifetime. we must do more to increase access and incentives are people the safe. social security remains the critical foundation of income security for the overwhelming majority of people. and because of low savings rates and high health care costs, future retirees will rely on it even more. efforts to strengthen social security for the future must take into account the retirement savings get. what is the gap?
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and the fact that the percentage of income, social security replaces has already declined due to the rise in the normal retirement age of 67. social security solvency is a major concern. but we can't address solvency without also taking into consideration adequacy. solvency but also adequacy. simply looking at solvency without considering adequacy again misses the larger goal of shoring up the income security needs of this nation. now, how we achieve solvency matters. it matters to government, the business, to the economy. and it matters to people. so we look to protect and strengthen social security. we are guided by some basic principles. any changes in social security should be discussed as part of a broader conversation about how
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to help americans prepare for a secure retirement. if you pay into social security, you should receive the benefits you have earned over a lifetime of hard work. your social security benefits should keep up with inflation for as long as you have. and you should continue to be covered in case you become disabled and can no longer work, and your family should continue to be protected if you, unfortunately, died. as all of us will. at aarp we're also providing education support and advocate for policies to help people save. we encourage better pensions and more private savings in addition to, not at the expense of, social security. look, this, it's all about people and not just numbers. not just numbers. our fear is that in the recent debates washington has forgotten
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that. the recent debate over the fiscal cliff focus on people with incomes of over $400,000 a year. what's that, to present? what happened to the other 98%? yet the typical senior has an income of only about $20,000 a year. that's a huge gap. unmanageable. so let me repeat that there is the typical senior has an income of only about $20,000 a year. and for most of them their social security benefit makes up a large chunk of that income. there are a lot of things we can do to ensure salsa security remain solvent and provide an adequate benefit now and also into the future. but the proposed use of an example, chained cpi is one of the worst. one of the worst. why? because the cuts in benefits for those who are at least able to
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afford. the oldest, poorest and most vulnerable among us. the chained cpi would cut one full month's income from a 92 year old beneficiaries annual social security benefit. one full month, at 92. what are the odds that they have not a need for that money? social study was designed more than 75 years ago, at a time when many women didn't work. glad that's over with. most marriages lasted forever, and people generally didn't live as long. now we need to make sure that the program serves the needs of our changing demographics for the next 75 years. the chained cpi doesn't do that. we need a robust national debate focusing on the role of social security and helping future generations achieve a secure retirement. over the last year we have been reaching out across the country
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to our members, people 50 plus, to get their ideas on securing social security and medicare for future generations. the initiative is called you've learned as a. many of you probably heard about it more than 6.3 million people have responded so far. 6.3 million people. they have consider a number of options at two-pointer clear. first they do not live social security should be cut to deal with problems in the rest of the budget. second, they believe social security is important to their retirement security, and they're willing to increase contributions in order to maintain benefits. that's why we must address the future of social security as a separate process with a goal of strengthening it. to help people achieve a secure retirement, not to reduce the budget deficit. aarp is ready to have that discussion right now.
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whenever congress and ready to address the future of social security as part of a broader discussion on helping people to achieve a secure retirement, we will engage in that debate. but aarp is not willing, however, to discuss the future of social security as part of a deficit reduction debate. my point is that budgets better, but people matter more. and yes, we need to make adjustments to medicare and social security and medicaid. and aarp members realized that. but we need to do so without compromising the health and retirement security of the american people or undermine the values that we cherish. that's what we need a full-blown national discussion of how to ensure social security continues to contribute to the retirement security of older americans in the future. now and the future. not in the context of reducing a federal deficit, he did not create, with the goal of helping
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people achieve retirement security. for all of those who say social security has contributed to the deficit, hate to tell you, you are wrong. you've heard it on tv, but it's not right. i received a letter from philip, and aarp member in fort morgan colorado. summed it up very well. social security and medicare, he said, are the foundation of most americans future. rightly or wrongly they are. we can make them secure, but would not happen if we don't find ways to reach a bipartisan solution. this quite frankly is our challenge. everyone knows that also. we must approach rebuilding the middle class holistically. issues like health care costs, jobs, savings, income security, the cost of education and the
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affordability of housing are all part of the total life experience of individuals and families. they are interrelated. now how we deal with one affects the others. they are also intergenerational. the cost of college has an impact on parents who are paying more for college. young adults who can't find jobs or a for their own housing often move back into their parents homes. anybody feeling that yet? there you go. many adults are not only supporting their young adult children, but also caring for their aging parents. anybody have that experience? for some families this is a choice. for many others, however, it is the cost of the middle-class decline. either way, it's all interrelated. and, finally, this is not just about economics. a strong middle-class is the bedrock of a functioning socie
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society. and ever widening gap between the haves and have-nots leads to instability of families and in society that makes it much more difficult for people to move up the socioeconomic ladder, to achieve the american dream and live their best life. so in the end we have to ask ourselves, what kind of america do we want? what kind of life do we want for our kids and our grandkids? for aarp the answer is clear. we want a society in which everyone lives with dignity and purpose and fulfills their goals and dreams, a life with access to affordable, quality health care and the opportunity to achieve lifelong financial security. a life where everyone has a realistic chance to pursue and achieve the american dream, whether they are young or old. now, former congresswoman
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barbara jordan put it this way. what people want is very simple. they want and america as good as its promise. to create an america as good as its promise, we have to rebuild and restore prosperity to the middle-class. at aarp, we are committed to that goal. we are committed to helping workers achieve their goals, whether that means finding a way to succeed in today's challenging workforce, or find a way to turn their lives passions into their life's work by starting their own business. we are committed to improving medicare to make it sustainable and slowing the growth of costs throughout the health care system. we are committed to strengthening social security by restoring long-term solvency while maintaining adequacy. we are committed to finding ways to help close the gap between what people have saved and what they will need to live in retirement. we are committed to reducing the deficit, but not by putting the
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health and financial security of the future, in the current generation at risk. in short, we are committed to rebuilding and restoring prosperity to the middle-class. i want to thank you for your time and attention. hopefully you have related to some of these. if you have, it's been a successful meeting for you, and i appreciate your time. thank you. [applause] >> now i'd like to introduce doctor debra whitman, aarp's executive vice president for policy international oversees the public policy institute and the middle-class security project. dr. whitman is an authority on aging issues and has dedicated her career to solving problems affecting future health security. and other issues related. dr. whitman.
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[applause] >> good morning. barry rand cover a lot of ground. i want to take just a few minutes to touch on some issues he raised and talk about policies we should pursue to strengthen the middle class. today we're releasing 99 research papers from aarp's other policy institute that explore critical elements affecting middle-class success. these include income, assets, housing, health care, and education. our research demonstrates that these elements are combined to make it increasingly difficult for families to maintain their standard of living. many important takeaways to these studies, but i want to point out just a few. first, millions and millions of americans consider themselves,
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the work otherwise common currently consider themselves part of the middle-class will face a decline in their standard of living when they retire. this is not just a concern for people who are older now, or even in middle age. if current trends continue what we consider today as middle-class retirement will be even more elusive for young people and future generations. as barry said, the erosion of retirement security for the middle-class makes the guarantee protections of social security and medicare even more important for future generations. proposals to weaken social security, such as the wrong inflation index, or medicare through a higher eligibility age, would be more harmful to middle-class families than a lot of people in washington realize. the research findings released
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today make it clear. they show that the middle-class is actually shrinking, dropping 10 percentage points from 1970. and medium income for families has fallen by 8%, between 2000-2011, and is lower today than it was in 1997. we also found that all americans, but especially older americans, our caring a lot more debt. our research found that middle income individuals over age 50 to keep balances on their credit cards now have more credit card debt, over $2000 more, than younger people. for younger workers, high debt levels make it nearly impossible to create an adequate nest egg and provide for a secure retirement in the future. increasing debt upon with rising health costs means that future generations will have to live on less. right now, average retirees have
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enough social security pensions and savings to replace 80% of the income they earned while they were still working. but that figure is headed downward. our data suggest today's workers retire, they could end up with just over half, over half, just over half of their pre-retirement earnings. speaking as an economist, that's just not enough for most people to maintain their standard of living. the research also shows that a great many individuals are already unable to pay for health care, including in families with insurance. one in 10 americans are in the family that currently has medical bills but cannot pay it all. and two in 10 struggle to pay these bills and put them on credit card or spread out payments over time. and the burden of health expenses does not vanish once you qualify for medicare. which is less generous than many
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people realize. a recent study by fidelity investments estimated that a 55 killed couple retiring in 2012 and receiving medicare would still need savings of $240,000 just to cover their future health care costs. that includes their premiums, deductibles and co-pays. but it doesn't include the extremely high cost of long-term care. yet according to aarp's public policy institute, half of all middle income families, age 65 65-74, have less than $53,000 in savings. they will need $240,000 just to cover the health care, not pay for going out or buying just for the grandkids. and they only have $53,000 on average in savings. that mismatch between savings and costs is a serious problem for families, and a serious challenge for policymakers.
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very laid out our policy recommendation to help support the middle-class, and i just want to provide a little more detail. high health care costs are not only for the federal budget but also the economy -- investment and jobs, contain those costs is essential to protecting middle-class workers and retirees. we need to build on and expand the efforts the affordable care act to squeeze out deficiencies in health care system. part of the answer is establishing a more competitive, better functioning marketplace for health care. we believe health care providers will respond -- and enhance quality. we believe that health care consumers will make wiser choices if they have better information about their care. we could lower health care costs tomorrow by making prescription drugs more affordable both for those in medicare and throughout
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the health care system. this could be accomplished by generics, including faster pathways to markets, or by allowing medicare to negotiate prices in part b and d., especially when it is a majority purchaser. importantly, we also need to find ways to increase retirement income. keeping social security financially stable and its benefits adequate is critical to maintain middle-class retirement, but people need other resources as well. we have to get more people to save more. and the earlier they start the better. this requires more opportunity for savings in the workplace, where nearly one half of all employees don't have access to retirement accounts for their employers. but just offering of retirement plan isn't enough. workplace plans should have
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helpful features such as automatic enrollment, increase employee participation and automatic expiration to help them save more over time. we also need to increase incentives so that all workers weep the benefits of savings in their retirement accounts. one of the key takeaways from our research is that a middle-class society can disappear in an instant. a costly illness, losing her job, mounting debt, a plunge in home value all can take turn at your -- turn your retirement into a struggle. we found that financial stresses affect one generation often has an impact on an entire family. and a threat to one generation could undermine security for a all. we know that older americans want a better future for our country and their family. and through research, advocacy,
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consumer education, aarp will do what we can to help make that dream a reality. thank you. [applause] >> and okay. venture, dr. whitman. our final speaker this one is nancy leamond, aarp's executive vice president for state and national group. she leaves aarp's government relations, advocacy, education activities and health care, financial security and livable communities. [applause] >> thanks, jeff. thank you jeff. good morning, everyone. it's nice to see all. thank you for being here today, and fetch it, i'm all that stand between you and the question and answer period. i want to talk for a few minutes today about aarp's advocacy agenda in 2013 and what we are doing to preserve and strengthen
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the middle-class. given given that you've heard from both barry and debra about some aspects of our federal agenda, my comments will focus largely on our state agenda. but first i'd like to reiterate what barry said. that we solicit a significant amount of input from our members, and all of that informed our work. since march of 2012, we have engaged more than 6.3 million members and a national conversation about medicare and social security. we called it you've earned a say because we believe our members and, indeed, all americans have earned a say about the future of these critical programs. from the beginning we could see that we were tapping into something very special. people of all ages and political persuasions were concerned that there were important conversations happening in washington, and they wanted a chance to voice their opinion. those are pretty easy
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propositions. we heard from folks through questionnaires, town halls, more than 4000 on the ground events, direct mail and over the phone, and the response was overwhelming. i just want to share a few of those findings. first and foremost, across party lines our members believe that medicare and social security are critical to the health and retirement security of both today's and tomorrow's seniors. they see the importance of these programs to them, but especially to their kids and their grandkids. there is a very powerful sense of legacy. they feel the reasonable adjustments are needed to strengthen the programs and put them on stable ground, but they want washington to have an honest and public debate when making decisions about medicare and social security. their view is simple. they should not be made --
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making changes in the last minute deals. we must address the very real budget and debt problems, they feel strongly that any debate needs to take into consideration the needs of real people, and not just hit a budget number. and given the picture painted by the aarp reports we released today of a middle-class that is stretched and striver, it shouldn't be a surprise to us that we are constantly about this huge goal between the washington numbers debate and the kitchen table conversations throughout the country. aarp has a long tradition of working to preserve and strengthen medicare and social security, and that work will continue in 2013. as the debate continued on capitol hill, we will ensure that the voices of our members are heard. while this will be a sleepy a significant part of our federal advocacy agenda, our work
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extends a number of other issues that are also very important to 50 plus americans. for example, we will also focus on advancing age discrimination legislation, ensuring a permanent fare payment system for medicare doctors, lovingly called the doc fix by those of us who are insiders, will protect medicare and medicaid, promote improvements in long-term care services, and better support for family caregivers. maintaining accessible, affordable telecommunications services for older americans is also on our agenda. but now i'd like to shift gears a bit and talk about the other and equally important side of our advocacy agenda. while many of you know aarp as a federal advocacy organization, you may not know that we also advocate in states and in communities across the country. in fact, we have offices and
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advocates, staff and volunteers alike, in every single state, district of climate, puerto rico and the u.s. virgin islands. we are where our members are, and while the spotlight in washington is on congress and the federal government, much of our work to strengthen the middle class happens in states and in communities. in 2013 we will work across the country on health and financial security issues. specifically, on the affordable care act we will work to expand access to affordable health coverage by urging state lawmakers to increase the medicaid threshold for individuals and families, which would expand eligibility for as many as 17 million americans in 2014. will also advocate for states to establish health exchanges so that individuals and small businesses are able to purchase affordable, high quality insurance. a long-term care, aarp will work with state lawmakers to improve
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health care quality, strengthen consumer protections, and increase the public accountability of facilities and providers delivering medical care. we will advocate for dates -- fight fraud and abuse, improve care transitions from the hospital to the home, and protect the privacy and security of electronic health records. we will call on state lawmakers to improve the balance of funding for home and community-based services, called a cvs, by redirecting spending away from costly institutional care and towards support and services in the community. we will encourage states to broaden options to include consumer directed care, home care and personal care services. meanwhile, we will promote efforts that give caregivers a better understanding of their options.
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our retirement security will advocate for current and future retirees on a number of fronts, reduction or elimination of promised benefits, preserving access to defined benefit plans where they exist, and cost-of-living adjustment. and creating new options for retirement savings in the private sector. we will support state laws to strengthen protections against investment fraud, deception and unfair practices such as improving guardianship and power of attorney standards, and protecting against identity theft, investment fraud, and scams that we know are often aimed exclusively at seniors. and, finally, on home energy, we will continue to advocate on this crucial pocketbook issue that affects so many americans. in fact, just this past year we saved consumers $1.8 billion in energy costs through our advocacy work in state legislatures and rate commissions across the country.
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now, as we work on these important issues that are right in front of us, we're also keeping our eye on the future. we know that one of the most important trends affecting the united states in this century is the aging of our population. everywhere is getting older. states and communities. since its movie season we can say it this way. there are no in human but in states, no place is getting any younger. that is why we are working to bring together state and community leaders to develop solutions that address the challenges and opportunities of an aging population. solutions that are good, for both older and younger americans, from housing to transportation, the services and support. we've already begun this work in a number of states. iowa, oregon, utah, michigan, new york and pennsylvania, and
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we will travel to others throughout 2013. we recently launched a new digital resource, aarp.org livable. so that community leaders can access the best practices, research and real-world examples of what communities are doing to deal with an increasingly older population. in conclusion, i just want to say that all of us at aarp are looking forward in 2013 to join forces with many of you, with the congress, the white house, governors, state lawmakers, in an ongoing effort to help strengthen the middle class and help americans over the age of 50 live their past lives. thank you very much. [applause] >> thank you, nancy. i do like to ask dr. whitman and barry rand to join us on stage, and i thank everyone for your
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participation so far today. in a few moments i would invite our guests from the media to join us for a brief question and after session. you will see aarp media relation personnel -- gathering the microphones right now. because of the large number of media professionals present we would ask you limit your inquiry to one question a time so we can accommodate as many of you is possible. if there's additional time remaining after the first round of questions we will recognize you for follow-up questions as appropriate. i believe our first question is in the corner. >> thanks. does aarp oppose chained cpi if it comes with protection for older workers and poor workers who have retired? >> it's really hard to actually mitigate around the chained cpi. a lot of the proposals, such as an do it at age 80, means that again by the time you

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